Tough Brexit rhetoric by the EU will only highlight its failure

The EU is going to talk tough in the forthcoming Brexit negotiations, so we are told. Last week, François Hollande, the French President, insisted that “There must be a threat, there must be a risk, there must be a price.” Jean-Claude Juncker, the President of the European Commission, adopted a similar tone at the same meeting in Paris. “You can’t have one foot in and one foot out,” he said. “We must be unyielding on this point”, he said.

The desire of the UK to restrict freedom of movement for EU citizens while at the same time retaining access to the single market lies at the heart of the EU’s tough stance. The UK must not be allowed “to have its cake and eat it”, as Boris Johnson once described it. However, some reports suggest that the tough line promised by leading EU figures goes beyond the single market/free movement conundrum. According to the Sunday Times, Didier Seeuws, the Belgian diplomat who has been appointed lead Brexit negotiator for the European Council, apparently wants to stop the UK ‘grandfathering’ the 36 free trade deals the EU has in place with third countries after Brexit – in other words, contuniung to be a party to these deals on independence.  The idea that these third countries may want to continue free trade with the UK does not seem to have occured to Brussels. The same article quoted an EU source as saying, “we cannot make the separation look like a success.”

Of course, in view of the lack of detail being provided by Mrs May’s government, we are currently only hearing one side of the story, which may well include an element of posturing. It is in no one’s interest to go for a suicidal divorce and there have been hints that a “transitional arrangement” with the EU pending a more complete separation has defintely not been ruled out by the Prime Minister. This could possibly be something along Liechtenstein model lines – although at this stage, we can only guess.

If, however, we are to take the hard words of senior EU figures at face value, they reveal an underlying weakness. Of course the leaders of EU-27 do not want the project to fail and France faces a presidential election next year which M. Hollande is likely to lose heavily. The obstacles to Marine le Pen becoming his successor are considerable, but any deal which makes it look like the UK will prosper outside the EU will only bolster support for her anti-Brussels rhetoric.

But if the EU is such a marvellous idea, should not the UK be pitied rather than punished for leaving it? Just think of some of the institutions that took, or take a severe line towards escapees and defectors – German Prisoner of War camps in World War II, the Inquisition of Roman Catholic church, the Soviet Union, North Korea… Not a very distinguished list. Mrs Merkel, the most powerful leader within the EU, grew up in East Germany, 50 miles from the divided city of Berlin. She will recall the machine-gun posts positioned on the Berlin Wall to stop people trying to leave for the better life in the West.

In reality, there are already countries in Europe that have been proving for many years that life is better outside the EU. Switzerland and Norway took first and third place respectively in the Economist Intelligence Institute’s quality of life index. Swizerland is the only European country to be ranked as “free” in the Heritage Foundation’s Index of Economic Freedom while in the World Bank’s rating of countries by per capita GDP, Norway and Switzerland are ranked 7th and 8th, ahead of every EU country except tiny Luxembourg.

Norway’s current government is led by a Europhile and the Swiss tend to keep quiet about their excellent lifestyle and system of government. Neither therefore trumpet from the rooftops the benefits our being outside the EU. Furthermore, these countries never joined the EU. If a member – especially a large country with a higher international profile – left the EU and prospered, the world would sit up and take notice.  The very fact that EU leaders are inadvertently admitting that unless they take a hard line, the UK will be better off out shows how concerned they are. Their behaviour, however, poses the question as to why they do not dismember the whole project so the other 27 countries can follow suit and be better off too.

However, the EU élite would rather rave at the “populism” behind the Brexit vote rather than admit that it suffers from a serious democratic deficit that is alienating voters in plenty of other countries besides the UK. We have done the EU a favour in pointing out its shortcomings. In return, it wants to punish us.

Photo by Fabrice Plas

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John Petley

John Petley

John Petley is Operations Manager for Campaign for an Independent Britain

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  1. PaulReply

    The Brexit vote should have served as a wake up call to the EU. It does seem that some quarters have understood that across Europe, great numbers of people want to be a part of a united Europe but not understand to the point of rejecting the model that has developed in the EU .
    Miss-guided, lost direction, non functional, non representative are the types of view being expressed across the continent. Not just today, but for many many years.
    Comments from individual in the EU, and who knows if these comments actually represent the EU’s position, around threats and prices to pay, serve only to reinforce that the EU continues to operate with an outdated modus operandus.
    That the discussion around Brexit and discontent across the continent revolves entirely around “desires to restrict freedom of movement” is a gross misunderstanding of the problems.
    “Freedom of moment” is just one of a great many concerns expressed towards the EU in the context of lost direction. The EU needs to wake up and respond, rather than mud slinging. Until it does, it’s difficult to see how it will survive long term.

  2. John Petley
    John PetleyReply

    This article was recently drawn to my attention, suggesting that acting tough will be a lot harder than talking tough:-

    Germany seems to be softening her stance on Brexit. On 17 August Michael Roth, Germany’s Minister of European Affairs said, “Given Britain’s size, significance, and its long membership of the European Union, there will probably be a special status which only bears limited comparison to that of countries that have never belonged to the European Union.” Roth’s comments mark a departure from Chancellor Merkel’s comments shortly after the Brexit referendum that Britain would receive no special treatment, nor would she be allowed to “cherry-pick” in trying to retain full access to the single market.

    Roth’s comments have not gone unnoticed in the British press. The initial response was a negotiating tactic which has been exposed when Theresa May refused to trigger Art. 50. Since Merkel has come out publicly in support of the EU’s and France position against any cherry-picking, Germany’s emerging position is being communicated on a more junior level. It allows the German government to begin the process of shifting the ground while not appearing to change its mind (yet).

    Few, however, realise how weak Germany’s and the EU’s negotiating position actually is.

    Chancellor M erkel is committed to ‘ever closer integration’ at no matter what cost and wants to transform Germany into the ‘moral superpower’ of the 21st century. With considerable skill she has disguised the true cost of the euro rescue and shifted the book value of Germany’s total loans and guarantee exposure to the balance sheets of the European Central Bank, the European Stability Mechanism and the Bundesbank which have become ‘bad banks’ where non-performing assets can be bunkered without being written off. Officially, the cost to the Federal budget has been limited to a few dozen billion euros since 2010.

    Meanwhile Merkel’s policies are paid for principally by German tax payers who would otherwise benefit from tax cuts, better public services and infrastructure and savers. According to a study of Germany’s Postbank, German savers lost EUR 125bn from 2011 to 2015 in terms of interest income due to the ECB’s ultra-loose monetary policy. Add to this the price of Merkel’s open door policy to migrants which will cost €50 billion in 2016 and 2017 alone, whilst, on the optimistic assumption that most refugees will find work, the likely cost over the next 20 years could be nearly €400 billion. If integration fails or many more refugees arrive, the cost will be significantly higher.

    With subdued domestic demand, Germany and the EU depend on trade-induced moderate growth including close trading relations with Britain. Nine EU countries send at least 5% of their total exports to the UK. In Germany whose economy is highly export-dependent, that percentage is about 7.5% of total exports. In 2015 Germany’s trade surplus with the UK alone was a staggering €51bn, about one fifth of Germany’s entire trade surplus.

    If anything, these figures understate Germany’s economic dependency on Britain. In 2015 around 36% of Germany’s total exports went to the Eurozone. However, under the so-called TARGET2 payments systems operated by the European Central Bank, Germany’s balance of payments surplus with the eurozone is financed not by the transfer of foreign currency reserves, gold or other near-liquid assets to Germany but by an open-ended overdraft facility granted by the Bundesbank.

    Under this peculiar system, the exporter is paid but not by the importing country but Germany’s central bank, i.e. the German public at large, which never receives payment from the importing country but a mere credit note from the importing country’s central bank. As of July 2016 the Bundesbank’s TARGET2 balance stood at over €660bn. That sum is the total debt owed by other eurozone central banks to the Bundesbank, which is unlikely ever to be repaid. The Bundesbank, in other words, has become another ‘bad bank’ financing the current account deficits of other eurozone members. Germany’s trade surplus with the eurozone therefore is little more than a massive ‘accounting trick.’ If German eurozone exports were paid for in the same way as her other exports, Germany would be a much richer country. That Germany is moderately prosperous at all, is owed in large measure to her ‘real’ non-eurozone trade surplus. Germany and, by analogy, other export-driven eurozone economies depend
    on trade with the UK as a key trade partner outside the dysfunctional eurozone much more than is commonly realised.

    Moreover, the EU as a whole is not in a position to withstand further financial turmoil which would be the inevitable concomitant of difficult and protracted Brexit negotiations. Italy’s banks are neck-deep in non-performing loans (NPLs). Official data estimates the total amount of NPLs at around 200 billion euros at around 8% of total loans. However, Wells Fargo, the U.S. investment, put the NPL ratio as high as 15% of their loan portfolios or around €350bn. Banca Monte dei Paschi alone, according to the ECB, had nonperforming loan exposure of at least €46.9 billion in 2015.

    ECB President Draghi is well aware of the EU’s fragility. According to ECB and Italian political sources he has assured his former colleagues at Goldman Sachs and other investment banks that Germany cannot do anything to put trade relations at risk. Due to ongoing euro crisis measures and increasing costs of her refugee policy, Germany’s economy and public finances are likely to weaken while German unemployment should start rising beginning next year. Critically, Draghi also reportedly expressed confidence that French and Commission resistance to concessions to Britain could be overcome and that, in return, Merkel was open to agree to French demands for a eurozone finance ministry after the 2017 German election and to provide German money for a bail-out of Italy’s moribund banks.

    If the UK government plays its hand well, it will be able to choose its terms of renegotiation with the EU and cherry-pick at that. By postponing the official start of withdrawal negotiation until 2017 Theresa May has made a promising start.

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